Spain faces a confluence of events in July, whereby it will need
to finance 21.7 billion euros within a single month. This
combines shortfalls in its budget and a wave of scheduled
government debt redemptions.

Even if the Spanish government draws down its cash reserves,
Goldman Sachs believes it will still be short 12.6 billion euros.

Goldman:

July: the government needs to finance €21.7bn (a €13.5bn cash
deficit and a €8.2bn net redemption), of which only €9.1bn can be
covered by cash reserves: the rest, €12.6bn, would then represent
a potential shortage.

This money will have to be raised through some sort of debt
issuance. Here are Spain's options:

Goldman:

-) First, the cash deficit may be smaller than we have assumed,
not least because the government, aware of the funding
constraints, will minimise discretionary spending or delay
payments to service providers, etc. In addition, the additional
spending cuts adopted in May have been applied as of June and may
result in lower deficits than we have assumed.

-) In addition, the government may issue bigger amounts of paper
than we have assumed, even if it has to pay more for it. In this
vein, the government has indicated it will issue a special,
syndicated bond in Q3—it issued one such bond in February, for
€5bn.

-) More speculatively, the government has large amounts of
financial assets (apart from the €18.3bn in cash it had at the
end of May). While most of these assets are illiquid—public
loans, shares, foreign loans—some may be more easily sold or
given as collateral against commercial borrowing.

-) Finally, the Treasury has arranged credit lines with
commercial banks, which can be used as a last resort.

It goes without saying that the government’s priority will be
smooth and well-bid auctions (see calendar below), with local
banks playing a crucial role.